Data Centres Lose the US Midterms as Texas Governor’s Defeat Puts 13 Gigawatts of AI Projects at Risk

Texas was supposed to be the safest bet in the artificial intelligence boom. On Tuesday night, voters in the state that holds roughly a quarter of all planned data-centre capacity in the United States elected a governor who campaigned on stopping new data centres altogether. Gina Hinojosa, a Democrat, defeated the Republican governor, Greg Abbott, after making a moratorium on data-centre construction the centrepiece of her campaign, according to Fast Company. The result sent a shock through the industry that is spending hundreds of billions of dollars building the physical backbone of AI, and it capped a night in which voters across the country pushed back against the build-out.

Hinojosa is the first Democrat elected governor of Texas since Ann Richards in 1990, according to Fast Company and Bisnow. Abbott conceded on Tuesday night, Bisnow reported. Her victory came alongside a Democratic sweep that returned control of both chambers of Congress to the party and delivered the Senate seat in Texas to James Talarico, the first Democrat elected to the United States Senate from the state since 1988, according to Fast Company. But for the technology industry, the governor’s race in Texas mattered more than any single congressional contest. Bank of America had called it the most consequential race of the 2026 midterms for utility and power markets, Fast Company reported.

The numbers explain why. The investment bank Jefferies estimated that Hinojosa’s proposed moratorium could put 13.3 gigawatts of announced data-centre projects in Texas at risk, potentially delaying construction or forcing developers to abandon their plans, according to Fast Company, which cited the bank’s analysis as reported by The Wall Street Journal. Texas accounts for roughly 26 per cent of planned American data-centre capacity, nearly three times the amount planned in Virginia, the country’s largest existing market, according to the same analysis.

Markets reacted before the votes were fully counted. United States stock futures fell sharply on Tuesday night, with S&P 500 futures down about 1.2 per cent and Nasdaq-100 futures down more than 2 per cent, according to Reuters. In Asia, Japan’s Nikkei 225 fell 3.6 per cent, South Korea’s Kospi fell 3.2 per cent and Taiwan’s Taiex lost 2.3 per cent, according to the Associated Press. SoftBank Group, one of the largest backers of AI infrastructure, dropped about 8 per cent. The dollar weakened and Treasury prices rose as investors moved into government bonds. The CBOE Volatility Index, Wall Street’s fear gauge, climbed above 20, Bisnow reported.

The Texas result that rattled the AI trade

Less than a year ago, Abbott stood beside Sundar Pichai, the chief executive of Google, to celebrate the company’s 40 billion dollar investment in the state’s cloud and AI infrastructure, Fast Company reported. Three new data-centre campuses would help make Texas, Abbott declared, the “epicentre of AI development”. On Tuesday, the voters who had watched that build-out accelerate across their state chose a different direction.

Hinojosa, a state legislator from Austin, accused corporations of taking advantage of Texans and operating with little oversight, blaming Abbott for creating what she called the “Wild West of data centres” at a press conference over the summer, according to Fast Company. She proposed a moratorium on new projects until state lawmakers pass lasting safeguards, and she wants to prohibit the non-disclosure agreements that keep communities in the dark, give residents a greater say over new developments, and require companies to prove their projects will not raise household water or electricity bills, Fast Company reported. She also wants to eliminate the government subsidies that have helped make Texas so attractive to developers.

One of those subsidies is particularly lucrative. Qualifying data centres can avoid Texas’s 6.25 per cent sales tax on equipment and other purchases for up to 20 years. The state comptroller projected that the exemption would cost 3.2 billion dollars in foregone revenue over two years, potentially an underestimate, according to Fast Company, citing the Texas Tribune. The industry argues that the incentives attract investment, jobs and other tax revenue. Critics question the public return when facilities can also place substantial demands on utilities and natural resources.

The result was not decided by data centres alone. Texans were also deeply dissatisfied with the cost of living, political corruption and a host of other issues, and Republicans were contending with a difficult national political environment under President Donald Trump, Fast Company reported. But the data-centre question was unmistakably on the ballot. In a recent University of Houston poll, 79 per cent of respondents supported limits on data-centre construction, while 76 per cent expected new facilities to drive up electricity bills, according to Fast Company. A CNBC voter poll found that 56 per cent of voters said data centres were a crucial or major factor in their decision, according to a report on the election results.

Abbott had already begun to retreat on the issue before polling day. In September, after years of courting developers, he halted new permitting approvals pending audits of projects’ water and electricity demands, and promised to pursue the elimination of tax incentives, Fast Company reported. But his restrictions were tied to those audits, whereas Hinojosa wants to keep development on hold until lawmakers create more permanent protections. The audit is due in December, weeks before Hinojosa takes office, Bisnow reported. Texas project approvals had already fallen 5 per cent in the third quarter, according to the permitting consultancy Spark AI, cited by Bisnow.

The scale of what is at stake

Texas’s economy is worth 2.9 trillion dollars, the second largest of any American state, and if it were a country it would rank eighth in the world, according to Fast Company, citing the state comptroller. It offers abundant energy resources, a large supply of relatively inexpensive land and a historically light regulatory touch. Researchers at Rice University’s Baker Institute estimate that annual data-centre investment in Texas rose from 3.4 billion dollars in 2022 to a projected 66.2 billion dollars in 2026, Fast Company reported.

That flood of money is part of a far larger global build-out. Goldman Sachs has estimated that hyperscaler capital expenditure will reach about 800 billion dollars in 2026 and about 1.2 trillion dollars in 2027, according to Reuters. The spending has been funded increasingly through capital markets, with Big Tech shares and AI-linked debt already under pressure before the election, Bisnow reported. The Nasdaq 100 had already entered a correction, falling more than 10 per cent below its all-time closing high of 6 October, according to Reuters.

The scale of Texas’s ambitions is putting growing pressure on the state’s resources. University of Texas researchers estimate that data centres currently account for less than 1 per cent of the state’s water use, but could account for as much as 9 per cent by 2040, according to Fast Company. Proposed facilities are seeking so much power that the state’s grid operator has had to rethink how it assesses requests to connect new projects. A Texas Tribune analysis found that about half of planned data centres are slated for unincorporated areas, where counties generally lack the zoning authority that cities use to regulate development, Fast Company reported, leaving nearby residents with little say over projects that could transform their communities.

SemiAnalysis, a research firm that tracks chips and data centres, estimated that Texas adds close to 30 per cent of new American capacity in 2028, according to a report published before the election. Its analysis of the governor races found that, of 20 candidates it tracked in the states where most new capacity is planned, nine wanted a pause on new construction and 11 wanted conditions attached. Fifteen candidates wanted data centres to pay their own grid costs, 12 wanted tax breaks ended and 11 wanted water use limited or reported.

A backlash far beyond Texas

The Texas result was the most dramatic, but it was not isolated. Voters handed the governor’s mansion in Georgia to Democrat Keisha Lance Bottoms, who called for a statewide data-centre moratorium to give the state time to create a comprehensive policy on development, Bisnow reported. Bottoms, a former mayor of Atlanta, is the first Black woman to be elected governor in the United States and the first Democratic governor of Georgia since 2002. In Ohio, Democrat Amy Acton won the governor’s race after backing a conditional moratorium, and communities in the state were passing local data-centre bans by wide margins, according to unofficial results cited by Bisnow.

Georgia delivered a second blow to the industry in a down-ballot race that rarely attracts national attention. Democrats took control of the Georgia Public Service Commission for the first time in decades. Both Democratic candidates, Peter Hubbard and Sheila Edwards, won seats on the five-member board that decides how much utilities can charge customers, Bisnow reported. The two have pledged to hold the state’s largest utility, Georgia Power, more accountable for how much customers pay for energy and to ensure that data-centre costs are not passed on to residential bills, which could affect a 20-gigawatt pipeline of projects, according to Bisnow.

The backlash has been building at the local level for months. An analysis by Fortune found that local officials had proposed more than 120 moratoriums on data-centre construction across 38 states by June, according to a report on the election results. Data-centre measures were on ballots in 13 states, Fast Company reported, with Ohio alone accounting for 21 of them. In 20 of the 36 governor’s races, candidates were calling for a moratorium, according to the same report. New York is so far the only state with a statewide moratorium in law, according to AI Weekly.

Other states moved in the same direction even where Democrats did not win. In New York, the incumbent Democratic governor, Josh Shapiro, won another term after rolling out new restrictions on data-centre development in August, removing the sector from his accelerated permitting programme and requiring developers to get approval from local authorities, Bisnow reported. His Republican challenger had called for even tougher rules, including a pause. In Massachusetts, Governor Maura Healey won a second term after introducing new hurdles for data-centre developers during her first term, according to Bisnow. In Illinois, Governor J.B. Pritzker won a third term after pausing data-centre tax credits this year.

Florida was the exception that underlined the pattern. Republican Byron Donalds won the governor’s race there with 50.1 per cent of the vote, and real estate money poured millions of dollars into his campaign, Bisnow reported. His campaign amassed more than 150 million dollars by election day, with some of his largest donors including the billionaire developer Stephen Ross and the Citadel founder Ken Griffin.

Markets react: tech leads the slide

The market reaction was swift and concentrated in the shares most exposed to the AI build-out. Technology led the losses as investors weighed what a Democratic Congress and a string of moratorium-minded governors could mean for the multitrillion-dollar data-centre programme, according to Bloomberg. The 10-year Treasury yield fell about six basis points to 4.906 per cent as investors moved into government bonds, according to Reuters. The dollar index, which tracks the currency against a basket of major peers, was down 0.32 per cent at 101.39, Reuters reported, while the euro rose 0.4 per cent to 1.1239 dollars.

Asian markets bore the brunt of the overnight selling. Japan’s Nikkei 225 fell 3.6 per cent and South Korea’s Kospi fell 3.2 per cent, according to the Associated Press, with semiconductor and memory-chip makers among the hardest hit. SoftBank Group dropped about 8 per cent. In Australia, the ASX 200 fell 52 points to 8,835, with technology stocks under pressure, according to a market report. Bitcoin touched a seven-week low before recovering to trade around 77,957 dollars, up 0.2 per cent on the day, according to Bloomberg.

Futures pared their declines as the morning wore on and some investors bought the dip. By Wednesday morning, Nasdaq-100 futures were down 0.45 per cent and S&P 500 futures were lower by 0.35 per cent, while Dow futures were off 0.18 per cent, according to Invezz. The partial recovery did not erase the message of the overnight move. The first full session of trading after the results, on Wednesday, would be the market’s first chance to price the new political landscape in full.

The reaction also reached the most prominent individual backer of the losing side in Texas. Elon Musk, who had spent roughly 212 million dollars backing the Republican candidate for the Senate in Texas, Attorney General Ken Paxton, posted on X on Wednesday that data centres in space were looking “appealing”, according to a report on the election results. Paxton lost the Senate race to Talarico. Musk’s remark, half joke and half acknowledgement of the industry’s problem, captured the mood of a sector suddenly short of friendly ground.

A federal moratorium, like the one proposed by Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez, remains a long shot even with Democrats holding both chambers of Congress, according to the same report. The more immediate threat to developers is the accumulation of state and local restrictions, each one small on its own, that together slow the pace at which new capacity can be built.

Power, water and the price households pay

At the heart of the backlash is a simple question that developers have struggled to answer: who benefits from a data centre, and who pays for it? A data centre creates relatively few permanent jobs once construction ends, yet it can draw as much electricity as a small city and consume large volumes of water for cooling. When households see their electricity bills rising, the connection is easy to draw, whether or not the data centre is the cause.

The politics of that question have shifted quickly. A year ago, governors competed to attract data centres with tax breaks and fast-tracked permits. Abbott’s September pause showed that even the industry’s most enthusiastic champions had begun to feel the pressure. Hinojosa’s victory shows what happens when a candidate offers voters a way to say no.

The industry’s counter-argument is that data centres bring investment, construction jobs and tax revenue, and that the AI infrastructure they house is a strategic national asset. The companies building them argue that delays in the United States will simply push capacity elsewhere, or slow the development of AI systems that American firms are racing to build. Developers can, and in some cases will, look elsewhere, Fast Company reported. But other states face their own constraints on electricity, water and land, and their own increasingly sceptical communities.

The grid is the binding constraint. Data-centre developers need enormous amounts of power, and they need it quickly, but grid connections can take years to arrange. In Texas, the scale of connection requests has forced the grid operator to rethink how it assesses them. In Georgia, the question of who pays for the power has become a political issue in its own right, with the newly Democratic Public Service Commission expected to press the state’s largest utility on whether data-centre costs are being passed to households.

What a moratorium can — and cannot — do

Winning the governor’s mansion does not give Hinojosa carte blanche. A governor can set priorities and direct state agencies within existing law, but permanently changing tax exemptions or expanding counties’ zoning powers would require cooperation from the state legislature, Fast Company reported. A statewide moratorium could also encounter legal obstacles. Still, developers contemplating billions of dollars in new investments must now reckon with the possibility of tougher rules that could remain in place for years.

The timing matters. The state audit of data-centre water and electricity demands that Abbott ordered in September is due in December, weeks before Hinojosa takes office, Bisnow reported. Its findings will shape the debate in the legislature and give the incoming governor an official basis for action. Hinojosa has proposed barring private equity firms from buying single-family homes as well, Bisnow reported, targeting institutional landlords in a state where housing affordability was also a central campaign issue.

Talarico, the new senator from Texas, has called for tighter regulations on data centres and said their construction should not be allowed to contribute to the state’s affordability crisis, according to Bisnow. That could upend expansion in the top data-centre development market in the country, Bisnow reported, citing Fox 7 Austin. But a senator’s influence over state-level permitting is limited. The more immediate decisions will be made in Austin, in the legislature and in the governor’s office.

For the industry, the lesson of Tuesday night is that the politics of data centres can no longer be treated as a local permitting problem. It has become a statewide and national political issue, with organised opposition, polling behind it and candidates willing to campaign on it. The companies that spent the last three years racing to secure land and power may now have to spend the next three years learning to win over the communities around them.

Analysis: Why It Matters

1. The AI boom just met its first real political constraint

Until now, the main limits on the AI build-out have been physical and financial: the availability of chips, the capacity of the grid, the cost of capital and the willingness of investors to fund it. Tuesday night added a political limit that is harder to model and harder to remove. Voters in the state that holds a quarter of planned American capacity chose a governor who promised to stop new construction. That is not a permitting delay. It is a democratic verdict on the terms of the build-out, and it will be cited by opponents in every state where a data centre is proposed. The industry has spent years arguing that AI infrastructure is a national priority. It now has to make that argument to voters who pay the electricity bills.

2. Texas was the test case, not the exception

Texas mattered because it was the friendliest large market for developers, with cheap land, abundant energy and a light regulatory touch. If a moratorium can win there, it can win almost anywhere. The pattern in Georgia and Ohio, and in the local bans passed across the country, suggests that the Texas result is the leading edge of a national shift rather than a local quirk. Developers who assumed that resistance was confined to wealthy suburbs or environmental activists should look again at the map: the opposition is broad, it is organised, and it is winning elections.

3. The market has been pricing a frictionless build-out

The sell-off in futures and Asian technology shares was not really about one night’s results. It was about the repricing of an assumption. The AI trade has been built on the belief that hyperscalers can spend 800 billion dollars a year and keep building without serious political friction. A Democratic Congress, three moratorium-minded governors and a string of local bans challenge that belief. The partial recovery in futures on Wednesday morning suggests that investors are not yet convinced the build-out will stall. But the direction of travel is now clear: every new project carries a political risk premium that was not there a week ago.

4. Power and water are now electoral issues

The most striking figure in the Texas campaign was not the margin of victory but the polling: 79 per cent of voters supported limits on data-centre construction and 76 per cent expected new facilities to drive up electricity bills. Those numbers explain why the issue cut across party lines and why even Abbott, a three-term Republican governor, felt compelled to pause permitting. Data centres use power and water on a scale that ordinary voters can grasp, and the costs are visible on household bills. Until the industry can show, convincingly, that its projects do not raise what families pay for electricity and water, it will keep losing this argument. Hinojosa’s demand that companies prove their projects will not raise household bills is the new standard, and it is a demanding one.

5. The industry’s response will decide what happens next

The companies building data centres have three options. They can fight the moratoriums in legislatures and courts, a strategy that may win individual battles but will deepen the political hostility. They can move to states that are still welcoming, but the map of welcoming states is shrinking and the same conflicts will follow them. Or they can change the terms of the deal: pay their own grid costs, fund water infrastructure, accept limits on tax breaks and give communities a genuine say in where facilities are built. The third option is the most expensive in the short term and the cheapest in the long term. The election results suggest that the industry can no longer afford to treat community consent as an afterthought. The firms that learn to build with communities, rather than around them, will be the ones still building in five years.

What to Watch Next

1. The Texas audit in December. The state audit of data-centre water and electricity demands ordered by Abbott is due weeks before Hinojosa takes office. Its findings will frame the legislative debate and give the incoming governor an official basis for a moratorium.
2. The first full trading session. Wednesday’s regular session on Wall Street will show whether the overnight sell-off in technology and AI-linked shares was a knee-jerk reaction or the start of a deeper repricing of the data-centre trade.
3. The Georgia Public Service Commission. The newly Democratic board’s first decisions on how Georgia Power recovers the cost of serving data centres will set a precedent for how utilities pass infrastructure costs to households.
4. The Texas legislature. Whether lawmakers cooperate with Hinojosa on tax exemptions and county zoning powers will determine how far a moratorium can go, and whether developers face a temporary pause or a lasting change in the rules.
5. Local ballots and the next round of moratoriums. With more than 120 moratoriums already proposed across 38 states and measures on ballots in 13 states, the local votes in the months ahead will show whether the backlash keeps spreading or has peaked.

Sources

• Fast Company — “Texas wanted to power America’s AI boom. Its new governor could change everything” (4 November 2026)
• Bisnow — “Democrats Win Congress As America’s Data Center Backlash Hits The Ballot Box” (4 November 2026)
• Heatmap News — “If This Was a Data Center Election, Data Centers Lost” (4 November 2026)
• CoinDesk — “Democrats flip South Carolina Senate seat, several House seats” (live election blog, 3–4 November 2026)
• Invezz — “US stock futures dip as Democrats reclaim Congress in major setback for Trump” (4 November 2026)